California pension ruling skips test of constitutional protections

(Reuters) - The California Supreme Court ruled on Monday that the elimination of a program allowing public workers to boost their pensions was constitutional, but it sidestepped the bigger issue of constitutional protections for increasingly expensive public worker pension benefits that are eating away at the state’s finances.

The case brought by a California firefighters union against the California Public Employees’ Retirement System (CalPERS) appeared to be a candidate to test the legal right of public sector workers to accrue the same level of pension benefits throughout their career. This so-called California rule has limited the ability of the state to cut retirement benefits as a way to ease pension costs.

Josh McGee, a senior fellow at the conservative Manhattan Institute, said the ruling leaves California with rising costs that are increasingly competing for money needed for state services.

“By sidestepping a ruling on the California Rule, the supreme court didn’t solve anything. They left a big unknown out there to be determined at a later date,” he said.

The high court affirmed previous trial and appeals court rulings that found the ability of public workers to purchase up to five years of additional service credit to boost their pensions was not protected by the state constitution’s contract clause.

The elimination of that program was part of a California pension reform law that took effect in 2013. Given its ruling, the supreme court said it would not take up the issue of whether the program’s termination was an unconstitutional impairment of workers’ rights.

“Because we conclude that the opportunity to purchase ARS (additional retirement service) credit was not a term and condition of public employment protected from impairment by the contract clause, its elimination does not implicate the constitution,” the opinion stated. “For that reason, we have no occasion in this decision to address, let alone to alter, the continued application of the California Rule.”

McGee said that while other pension cases are working their way through the California courts, it was “relatively unlikely” that justices will give the state flexibility to reduce its pension costs.

Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis